Avoid Solutions Looking for Problems: Editor/Publisher's Column

During the Governmental Affairs Conference, Chip Filson announced his intention to seek an NCUA Board seat, which was the culmination of speeches and online postings criticizing the NCUA’s activities throughout the financial and corporate crises. He has launched a petition designed to force President Obama to consider him as a candidate. Chip knows credit unions inside and out, and he’s fiercely intelligent. He’s highly qualified to sit on the NCUA Board as far as his résumé is concerned.

But this is where I give pause to his idea of reforming the NCUA appointment process, as stated in the petition, "Appointed NCUA governing leaders should hold to the same standards credit unions themselves follow. They should be motivated by the unique contributions and needs of a cooperative business."

The NCUA should absolutely consider credit unions’ unique qualities when regulating and overseeing the industry. That’s the agency’s duty. It is NOT, NOT, NOT, however, the agency’s duty to “be motivated by” the seven cooperative principles. Recognizing examiners for their chartering efforts, as Chip has suggested, is a VERY BAD idea. The credit union community is no longer a collection of 22,000 small credit unions. Today it holds more than $1 trillion in assets and 7,000 credit unions. The world has said, we don’t need any more financial institutions–perhaps different ones but not more of the same.

Unfortunately, Chip was out of the country when I contacted his office to discuss his concept, but I did scrape bits and pieces of answers to my questions from his recent blog posts. In one titled, “How to apply the 7 cooperative principles to regulatory design,” he suggests that the NCUA should practice cooperative principles and notes the insurance fund as an example. He suggests that the funds should be used to the system’s benefit.

The NCUSIF and the work of the NCUA were the only things that kept half of all credit unions from going out of business overnight when five corporates failed. The agency wasn’t perfect, but it got the job done in fixing the corporate mess to the benefit of the entire industry.

Another post criticizes the agency’s reporting of financials related to the corporate crisis, which have been sketchy, but makes the argument using reported capital at the corporates as of December 2007, well before they were conserved and liquidated. As of the month prior to each of the five conservatorships, the combined capital was negative $1.3 billion for U.S. Central and WesCorp and $143 million for the other three. It was gone. At the time of liquidation in the fall of 2010, the five corporates’ equity was negative $14 billion.

Additionally, the CLF was an asset of U.S. Central. There was nothing left. That’s what happens in a cooperative industry that’s overly interdependent. It’s all the same money moved around to different pots.

In fact, very few natural person credit unions have ever wanted the CLF or used it, so U.S. Central funded nearly all of it. Only 96 credit unions are direct members even now, and the remaining corporates will not be able to pony up the necessary stock for their members to join the CLF.

Look at the initial funding of the CLF, care of a little arm-twisting from Chip Filson, who was president of the CLF at the time. The corporates didn’t want the CLF. Credit unions didn’t want the CLF. It was a solution looking for a problem.

Railing against the NCUA for unilateral decision-making in the corporate crisis – which is not true given that credit unions executives served on the boards of the credit unions and had the initial responsibility to oversee the credit unions – rings hollow in light of forced cooperation.

NCUA Board members should have a strong grasp of credit unions and their cooperative nature. Chairman Debbie Matz came from a credit union and a previous stint on the NCUA Board. Board Member Michael Fryzel was the state credit union regulator in Illinois. Gigi Hyland, who occupied the now open seat on the NCUA Board, worked as a credit union attorney, a trade association executive and is actually a CU Development Educator.

While I don’t agree with what they’re doing all the time, no one can really say these people are not understanding of credit unions’ cooperative principles. Again, this petition is a solution looking for a problem.

Chip has emphasized that, “We the people are the government.” I agree whole-heartedly. If you don’t like something, try to change it. Like it or not, you have to play by the rules or the other players will kick you off the field. No one likes that political appointments are about scratching the back of the person who just scratched yours, but at the NCUA the board members in recent memory really did have a deep understanding of credit unions. Maybe credit unions (or I) didn’t like some of what they did, but it wasn’t because they didn’t understand credit unions.

Before petitioning the president (in a week and a half, Chip had 1,800 of the 100,000 necessary signatures to gather within 30 days to require a response from the president), related issues could be addressed in a more traditional manner and be more effective.

For example, eliminate the restriction that only one person with a credit union background serve on the board at a time. Not only has it been flouted with the most recent NCUA Board make up, but it is not consistent with the bank regulators.

Second, expand the NCUA Board, which would help negate industry influence on the regulator and better avoid situations like the current one where there are only two board members of opposite political parties–and very soon possibly just one board member who could act unilaterally.

I applaud Chip’s advocacy for what he very passionately believes to be right for credit unions, and admire his knowledge and voracity, but this movement’s goals are not appropriate for a regulatory agency.